Berlin Real Estate Question “Will we loose money?”

byAlexander KorteonNovember 12, 2007

This happens all day, somebody writes an email to us, after he came back from a Berlin House Hunting trip (via one of the big marketig maschines).

The situation is the following, after a presentation and the visit of two properties the people have signed a LOI and payed a Down-Payment to the agent (that they will loose if they don’t finally sign the deal).
The first property the yhave visited is in a good area like Charlottenburg, but sold out.
The second one is in a more or less good are like SchÃƒÂ¶neberg or Steglitz and here they are still some flats available. But the agent things its necessar to sign a LOI and pay a downpayment because all the guys in the group want a flat and demand is high.

All is risk free, the people don’t need to come back to Germany, the have a rent garantee, and a lawyer is available for the next 10 years. Potential is 5-10% annual, because of facts like the new Airport and overall demand in the capital of Germany.

Back home these people hav a strange feeling and start to do some research, some of the write us an email.

This is one of our original answers.:

Dear XX,
you obviously buy from one of the big marketing machines, like XXX.

Did you make a Down payment (that you will loose when you don’t sign the deal?)

First of all you have to ask yourself if you wanna loose this down payment.

Second, you have to ask yourself if you are ok with a “C-Investment” like I use to say.

A-B-C-Investments would not loose money but:
A-Investments have yield and capital appreciation (potential)
B-Investments have yield or capital appreciation (potential)
C-Investments will not outperform the market nor in yield neither in capital gains.

D-Investments, will not loose you money but you (hopefully) will security your money agains deflation.
E-Investments, are highly likely to loose you money because there is no demand, no renter and if there is one you have trouble.

The area that you will buy has little dynamic, and therefore has only C-Potential.
Nevertheless I am a German Broker without London growth experience and therefore might be wrong, but I know German Renter Laws and the restrictive potential for hughe capital gains that comes with it.

I don’t say you will loose money but you are here to make money, and I think you can have better investments (as the ones I send you).

You pay money (via a slightly higher purchase price) to cover all those cost for rent pooling, lawyers etc.
As you said its a one-stop-shop and you don’t even have to come back to Germany, obviously somebody makes money with some buzz-words like “under evaluated capital of the biggest European (or even world) economy”, new “airport” high demand, blablabla.

In terms of flat Investment there are in my opinion two ways to go.:

1.) high priced (up to 2000 Euro/m2) demanded and dynamic locations like Mitte & Prenzlauerberg (capital appreciation potential high, while having a low yield, because risk is obviously very low)

2.) low priced housing in areas with good demand in a good to new condition in areas like OberschÃƒÂ¶neweide or NiederschÃƒÂ¶neweide, Weissensee, Adlershof (sience location) for lets say 1100 to 1450 Euro/m2 (yield potential high, capital gains ok)

I would highly appreciate if you would become a client of us and if you would buy via our brokerage company, our broker for flats is XXX, he is well experienced and has a lot of knowledge regarding the process you are stuck in right know.

Btw.: You are not the first one pulling the plug after our consultation.

Best Regards,
Alexander Korte

P.S.: Do you get money out of the rent pool if the rent is higher than the garanteed one?

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